Pension Contributions

As the filing deadline for 2013 income tax returns draws close, it is a good time to consider whether you should make a pension contribution.  In recent years, with the introduction of the pensions levy and the reduction in the standard fund threshold, many have been discouraged from making further pension contributions.  However, it is worth keeping in mind that tax relief on pension contributions is still one of the most attractive tax reliefs available.

Depending on your age and level of earnings, you can contribute a certain percentage of your salary to an approved pension scheme and avail of tax relief up to 41%.  The percentage increases with age and the maximum earnings that can be taken in to account is €115,000.  So for example, an individual with earnings of €60,000 who is aged 50 can make a pension contribution of €18,000 (i.e. €60,000 x 30%).  The relevant percentage limits are as follows:

Under 30   15%
30-39         20%
40-49         25%
50-54         30%
55-59         35%
60 or over  40%

These personal pension contributions can be made in addition to any contributions that an employer may be making for you to an occupational pension scheme.  If you make a personal pension contribution prior to 31 October 2014, you can avail of tax relief on that contribution in your 2013 income tax return.

For those who have already built up significant pension savings, now is a good time to assess your current position and review your pension strategy.  As most will be aware, the standard fund threshold was reduced in Finance (No.2) Act 2013 from €2.3 million to €2 million.  This means that anyone with pension benefits above the €2 million threshold may incur an additional tax, known as an excess fund tax, when they access those pension benefits.  This threshold has been significantly eroded in recent years, being reduced from a high point of €5.4 million in 2010 to €2 million from 2014 onwards. 

As with previous reductions in the threshold, Revenue are allowing those who already had pension benefits above €2 million at 1st January 2014 to apply for a personal fund threshold (PFT).  That PFT, instead of the €2 million threshold would then apply to that individual.  The maximum PFT available is €2.3 million.  Applications for a PFT must be made online and the deadline for applications is 1 July 2015.